Mumbai: “Loans to companies by public sector banks have risen 50% between October 2008 and May 2009, compared to the corresponding period earlier, while the cost of capital for companies has come down significantly,” said M.V. Nair, chairman of Indian Banks’ Association (IBA), the apex bankers’ lobby in the country, on Monday. Nair was responding to a remark made by Habil Khorakiwala, chiarman of debt-ridden Wockhardt Ltd and president of the Federation of Indian Chambers of Commerce and Industry (Ficci) that banks are not lending to small and medium companies. They were both speaking at a curtain raiser for a Ficci-IBA conference scheduled next week.
Nair, who is also the chairman and managing director of Union Bank of India claimed Indian banks have sacrificed their profit margins to extend cheap credit to companies.
“Despite deposit rate cuts not getting reflected in profitability, we have pared our lending rates. In the process, our net interest margins have reduced,” he said. Net interest margin, or NIM, is the spread between a bank’s yields on loans and cost of fund.
“In my bank, for instance, the NIM has dropped from 3% to 2.3%,” he said.
According to Nair, the cost of borrowing as a percentage of gross profit for the companies were at an average of 35% in the third quarter, in the fourth quarter it came down to 23%, evidence of cheaper availability of loans.